SMALL and medium-size enterprises (SMEs) are increasingly looking to expand outside Singapore, the latest SME Development Survey by DP Information Group has found.
And Asia has replaced the West, taking the top 10 spots for preferred overseas expansion.
The survey - which, it should be noted, was carried out in April-June, before the latest upheaval in financial markets - shows 24 per cent of SMEs cited overseas expansion as a key strategy in the next one or two years, a jump from 21 per cent in 2007.
And while Malaysia retained its crown as the favourite market to get into (69 per cent), China overtook Indonesia with 67 per cent of SMEs citing it as a key market, versus 60 per cent for Indonesia.
Also, Japan and Korea replaced Australia and the US in the top 10 preferred markets.
SMEs keen on expansion in Japan and Korea are largely from the wholesale, manufacturing and services sectors, DP's survey found.
Managing director Chen Yew Nah said: 'The shift towards Asia and Middle East has been timely and may help cushion our SMEs from the current financial turmoil.'
According to DP, SMEs have also grown in sophistication, with some adopting customer service and branding as growth strategies.
Corporate results also improved, with a record 29 per cent of SMEs experiencing accelerated annual growth of 10 per cent or more, compared with 27 per cent a year earlier and just 20 per cent the year before that.
The number of loss-making companies, meanwhile, dropped to 13 per cent last year, from 21 per cent a year earlier.
Some 7 per cent of respondents reported profits of more than $5 million, compared with 6 per cent a year earlier.
Rising operating costs emerged as the top concern, with 58 per cent of respondents citing this as a major challenge. Increasing competition took second spot with 49 per cent. Manpower issues ranked third at 39 per cent.
Manpower issues are particularly important for start-ups (42 per cent) and those in the accelerating growth phase (50 per cent). Cashflow is a key concern for those in the start-up and decline stages.
Asked what was causing costs to rise, 58 per cent of SMEs cited labour costs. The cost of materials ranked second at 57 per cent, up from 55 per cent a year ago.
Rent was cited by 42 per cent of respondents.
Encouragingly, fewer companies are having difficulty finding business opportunities, accessing funds or grappling with market size constraints. New finance was a hindrance to growth for only 6 per cent of SMEs, compared with 10 per cent a year earlier.
'A high 70 per cent of SMEs indicated they do not require finance for the next year,' said DP. 'With the abundance of financing options and schemes available commercially, it would appear that SMEs have no lack of choice. However, it might also serve as a sign that the growth and expansion ambitions of SMEs are levelling off as they do not require additional finance.'
To help address these issues, DP has recommended the introduction of risk-based financing, where different interest rates are charged, depending on the credit rating of the SME.
The study also found that the credit ratings of SMEs have generally improved, while the use of infocomm technology and innovation is taking root.
For example, the percentage of investment- grade firms - defined by a default risk of less than one per cent - rose to 17 per cent in 2008 from 14 per cent previously.
In contrast, the percentage of high-risk firms - default risk of more than 8 per cent - dropped 6 points to 25 per cent.
Also, some 88 per cent of those who have adopted infocomm technology plan to further embrace it in the next two years, while half of those who have not done so are considering their first attempt in the next one or two years.
The detailed findings of the survey will be released at a conference on Oct 15. More information is available at www.dpgroup.com.sg
This article was first published in The Business Times on October 07, 2008.
